Like-Kind Exchanges – No Longer a Thing of the Past
Regional real estate markets continue to rebound and promising new deals are available for entrepreneurs ready to move on to bigger and better investments. Those same entrepreneurs are suddenly in a position to sell for a profit holdings which were previously underwater. As this scenario becomes more prominent, investors should once again consider the use of a like-kind exchange to alleviate the tax burden associated with gain on the sale of business assets.
A like-kind exchange, as defined under Internal Revenue Code Section 1031, allows for a tax free transfer of business or investment assets which are of “like-kind”. This strategy hasn’t been utilized in the real estate market in recent years because property values had depreciated and the majority of investors who sold were able to recognize and deduct losses at closing. The recovering real estate market has once again made the like-kind exchange a viable option and increased capital gain tax rates (from 15% to as high as 23.8%) have made it a more powerful tax saving strategy.
Successfully executing a like-kind exchange can be difficult. To assure preferential tax treatment, taxpayers must plan ahead and closely follow IRS regulations with respect to timing and the use of a qualified intermediary. Anders has created a cheat sheet which outlines basic considerations and requirements to complete a like-kind exchange. Contact your Anders advisor to learn how this strategy can work for you.